Lee Shih and Joyce Lim discuss the doctrine of universal succession and the transmission of shares by operation of law.
In the recent case of United Renewable Energy Co Ltd v TS Solartech Sdn Bhd
 8 CLJ 721 (“United Renewable Energy”
), the Malaysian High Court, for the first time, recognised the doctrine of universal succession and gave effect to the transmission of shares held in a Malaysian company by operation of law pursuant to a foreign merger.
DOCTRINE OF UNIVERSAL SUCCESSION
What is universal succession?
The doctrine of universal succession originates from Roman law. It provides that where the law of incorporation recognises a succession of corporate personality from one corporate entity to another, then the law of the forum will recognise both the changed status of the company, and the fact that the successor has inherited all rights and liabilities of the preceding company.
This doctrine has been widely recognised by the Commonwealth Courts. Various authorities are set out below which recognise the concept of a universal succession, where all assets and liabilities are vested in the successor entity. It did not matter whether the exercise was carried out pursuant to a statute that created a new successor entity or through a private merger agreement.
The leading case on this doctrine is the English House of Lords’ decision of National Bank of Greece and Athens SA v Metliss
 AC 509 (“Metliss”
). This case laid down the principle that as far as the law of the forum is concerned, once an entity is recognised as having the status of a universal successor, then it will be clothed with both the assets and liabilities of the predecessor entity. In Metliss
, the universal succession was triggered by the amalgamation of companies under a statute which provided that a new entity would inherit the rights and obligations of two Greek banks. The Court held that the new entity was bound by a guarantee issued by one of the predecessor banks.
The English High Court decision of Astra SA Insurance and Reinsurance Co v Sphere Drake Insurance Ltd (formerly Sphere Drake Insurance plc, Sphere Drake Insurance plc and Odyssey Re (London) Ltd)
 All ER (D) 672 (“Astra
”) is also relevant. The question arose was whether Astra SA Insurance and Reinsurance Co (“Astra SA”) had, under Romanian law, succeeded to the rights and liabilities of a former Romanian State Insurance Company (“ADAS”), and was thus liable under various international insurance and reinsurance contracts and bound by the arbitration clauses contained in those contracts. Pursuant to a development in Romanian Law, ADAS ceased to exist, and its assets and liabilities were divided among three new companies, one of which was Astra SA. It was held that the entire benefit and burden of ADAS’ international insurance and reinsurance contracts had passed to Astra SA, and all the terms, including the arbitration clauses, were enforceable against Astra SA.
In the context of the effect on an arbitration agreement where one party ceases to exist by virtue of a universal succession, a similar decision was reached in the English High Court decision of Eurosteel Ltd v Stinnes AG
 1 All ER (Comm) 964 (“Eurosteel
”). A German company (“Bayerischer”) entered into a contract of affreightment with an English company (“Eurosteel”), as charterers. Both parties referred a dispute to arbitration in England under English law. After the arbitration had commenced, Bayerischer was merged with another German company, Stinnes AG (“Stinnes”). One of the questions before the Court was whether the arbitration proceedings had come to an end on the merger since Bayerischer no longer existed. It was held that as a matter of the German law of universal succession, the rights under the arbitration passed to Stinnes upon its merger with Bayerischer. English law recognises that and accordingly the arbitral proceedings did not lapse or conclude by reason of the merger. The arbitration was entitled to continue.
In the Australian Federal Court decision of Re Sidex Australia Pty Ltd (reg and mgr apptd); Sipad Holding ddpo and another v Popovic and others
 18 ACSR 436, a similar decision was reached. By virtue of a law being passed in the former Republic of Yugoslavia to allow the creation of privatised corporations, one of the enterprises operating in Yugoslavia that was privatised applied for a rectification of the register of its predecessor company to reflect that it was now the owner of certain shares of an Australian company formerly held by its predecessor company. The rectification application was allowed as the Australian Federal Court held that it will give effect to the transfer of assets and assumption of liabilities for which the Yugoslavian law provides.
The doctrine of universal succession was, for the first time, considered and approved by the Singapore courts in a landmark decision of JX Holdings Inc and another v Singapore Airlines Ltd
 SGHC 212 (“JX Holdings
In JX Holdings
, the issue was where a foreign entity (A) succeeds to all the rights and liabilities of another foreign entity (B) pursuant to a corporate action which (under the laws of their jurisdiction of incorporation) deems A to be the successor of all of B's rights and obligations, who should be registered as the owner of shares which were originally owned by B? A related issue was whether there was a “transfer of shares” or a “transmission of shares”. The distinction is crucial as only the former would require an instrument of transfer.
The Singapore High Court recognised the doctrine of universal succession and found that the status of a foreign corporation as it exists under its law of incorporation will be recognised by the Singapore courts out of comity. As such, the shares held by B had been transmitted to A by operation of law and therefore A should be registered as the owner of the shares originally owned by B.
On the issue of whether there was a transfer or a transmission of shares, the Singapore High Court highlighted that a transfer is a voluntary disposition of legal title to the shares brought by an act of the shareholder, whereas a transmission is an automatic devolution of title which takes place by operation of law upon the occurrence of a legally significant event, which includes a merger. As such, the shares in question had transmitted to the succeeding company by operation of law and the succeeding company was entitled to be registered as a shareholder in place of the predecessor company without having to prepare and deliver a proper instrument of transfer.
Another relevant case would be the Singapore International Commercial Court (SICC) decision of BNP Paribas Wealth Management v Jacob Agam and another
 4 SLR 14. This decision was upheld by the Court of Appeal in Jacob Agam and another v BNP Paribas SA
 2 SLR 1. BNP Paribas Wealth Management (“BNPWM”) and its wholly-owned subsidiary, BNP Paribas SA ("BNPSA"), merged pursuant to a merger agreement under French law. This resulted in all assets and liabilities of BNPWM being assumed by BNPSA, including BNPWM’s business in Singapore. One of the issues to be determined by the SICC was whether the assumption of BNPWM’s business in Singapore by BNPSA should not be given effect because it was in breach of section 55B of the Singapore Banking Act (Cap 19, 2008 Rev Ed), which provides, among others, that Court approval must be obtained for any voluntary transfer of business. However, the said section also stated that the requirement for Court approval was without prejudice to the right of a bank to transfer the whole or any part of its business under any law.
The SICC cited JX Holdings
with approval and held that Court approval was not required. Although the merger may be regarded as a voluntary act between the parties, BNPWM and BNPSA are companies incorporated in France and the merger agreement was effected through Article L.236-3 of the French Commercial Code, which provides a means by which there can be a succession to corporate personality in a merger. This was recognised by the SICC.
MALAYSIAN COURT RECOGNISES THE DOCTRINE
In Malaysia, transmission of shares by operation of law is usually seen in cases of bankruptcy or death of the registered holder of the shares.
In United Renewable Energy
, the Malaysian Court had the opportunity for the first time to consider the doctrine of universal succession in the context of a foreign merger, and the issue of whether the successor company had assumed the shares of the predecessor company through a transfer or a transmission by operation of law.
The plaintiff, United Renewable Energy Co Ltd (“URE”), is a public-listed company in Taiwan and the successor company after a merger between three solar-related Taiwan companies, namely Solartech Energy Corp. (“Solartech”), Gintech Energy Corporation (“Gintech”) and Neo Solar Power Energy Corp. (“Neo Solar”).
The defendant, TS Solartech Sdn. Bhd. (“TS Solartech”), was originally formed as a joint venture company between Solartech and Tek Seng Holdings Berhad (“Tek Seng”). Solartech held 97,700,693 shares in TS Solartech (“Subject Shares”). The current shareholding of Tek Seng and Solartech in TS Solartech is 50.7% and 42.1% respectively.
In January 2018, Gintech, Solartech and Neo Solar entered into a merger agreement where it was agreed that the parties shall be merged into one corporation to build a flagship class solar energy-oriented enterprise in Taiwan. It was also agreed that Neo Solar be the surviving company pursuant to the merger. On 1 October 2018, Solartech merged with Gintech and Neo Solar (“Merger”), with one single merged entity existing: Neo Solar. Neo Solar then changed its name to URE.
URE claimed ownership of the Subject Shares on the basis that the Subject Shares were transmitted to URE by operation of law pursuant to the Merger. Further, the various provisions under the laws of Taiwan provide that the Merger had caused URE to assume all rights, obligations, assets and properties of the predecessor companies. URE argued that its ownership of the Subject Shares should be recognised by virtue of the doctrine of universal succession.
TS Solartech refused to register URE as the owner of the Subject Shares. As such, URE resorted to legal action, where it sought a declaration that the Merger had carried into effect a transmission of the Subject Shares to URE by operation of law. URE also sought for consequential orders for the registration of the transmission of shares and rectification of TS Solartech’s register of members (“ROM”) to include URE’s name as the new registered owner of the Subject Shares.
TS Solartech contested the application and argued that: